Mortgage affordability
Work backwards from your income to the house price a lender is likely to accept.
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How this works
How lenders decide
Affordability is not calculated from the house. It is calculated from your income, and everything else follows. The chain runs in one direction:
- Take your gross monthly income.
- Multiply by the debt-to-income limit to get the total the lender will let you commit.
- Subtract your existing debt payments and the running costs of the property.
- What remains is the mortgage payment you can support.
- Convert that payment into a loan amount at the current rate and term.
- Add your down payment to reach the purchase price.
The last step uses the annuity formula solved for principal rather than for payment:
loan = payment × (1 − (1 + r)^−n) / r
Every input above the last step changes your budget. Only the rate and term change how much loan that budget buys.
The number lenders watch
Debt-to-income is the ratio that decides most applications. It compares everything you are contractually obliged to pay each month — the new mortgage, plus car finance, card minimums and student loans — against your gross monthly income.
| Total debt-to-income | What it usually means |
|---|---|
| Under 28% | Comfortable. Room for savings and for things going wrong. |
| 28–36% | The standard approval band. |
| 36–43% | Possible with strong credit and reserves. Tight in practice. |
| Over 43% | Rarely approved, and a poor idea where it is. |
Note what this implies: paying off a car loan can raise your mortgage ceiling by considerably more than the loan balance itself. Removing a 400-a-month payment frees 400 of monthly budget, which at typical rates supports roughly 60,000–65,000 of extra borrowing.
Why the rate scenarios are there
The three bars below the result show the same budget at today's rate and at one and two points higher. Most buyers are surprised by how much ground they lose. It is worth looking at even if you are taking a fixed rate, because it tells you what the market will look like when you come to remortgage, and what the property might be worth to the next buyer if rates have moved.
Costs this calculation does not carry
The monthly property costs field covers ongoing expenses, but buying a home also has one-off costs that come out of your deposit, not your monthly budget: legal fees, survey, transfer taxes, and moving. Depending on the country these run from 2% to 10% of the purchase price. If you enter your entire savings as the down payment, the price shown here is too high by whatever those costs turn out to be.
Maintenance is the other quiet one. A common planning figure is 1% of the property value a year, which does not arrive as a monthly bill but does arrive.
The gap between approved and sensible
A lender is underwriting the loan, not your life. Their model does not know that you want to change careers, that one income might pause, or that you would like to keep saving. The maximum figure is a ceiling, and treating a ceiling as a target is how households end up house-rich and cash-poor.
A useful discipline: find your maximum here, then set the debt-to-income slider to 28% and look at that number instead. The difference between the two is the margin you are choosing to spend or keep.
Common questions
- Is this the same as a pre-approval?
- No. A pre-approval is a lender looking at your credit file, verifying your income, and committing to a figure. This is the arithmetic that sits underneath that decision. It will usually land in the same neighbourhood, but a lender can go higher or lower based on your credit history, how long you have held your job, and where the deposit came from.
- What debt-to-income limit should I use?
- Lenders in most markets cap total debt payments somewhere around 36% of gross income, and stretch to 43% for strong applicants. Those are approval thresholds, not comfort thresholds. Households that keep housing costs under about 28% of gross income report far less financial strain, and the slider is there so you can see what that restraint costs you in buying power.
- Why does the price drop so much when rates rise?
- Because your monthly budget is fixed, and a higher rate means more of each payment is interest rather than principal. Two percentage points typically removes 18–20% of what you can borrow. This is why buying power falls in a rising-rate market even when your income has not changed at all.
- Should I use gross or net income?
- Gross, because that is what lenders assess. But do your own sanity check against net income — the mortgage is paid out of what actually arrives in your account, not out of the pre-tax figure on the application form.
- Does a bigger down payment let me borrow more?
- It does not increase the mortgage — that is capped by your income. It raises the price you can reach, one-for-one, and it can lower your rate or remove mortgage insurance, which frees up monthly budget and does then increase the loan.